Ahead of a potential economic slump, the Canadian government on Thursday promised modest extra expenditure in an updated fiscal plan thanks to windfall income.
Under pressure to cut costs, Finance Minister Chrystia Freeland asserted that spending cuts totalling about $30 billion (US$22 billion) over six years, including the elimination of student loan interest and a reduction in credit card transaction fees for small businesses, would not contribute to inflation.
She also implemented levies on corporate share buybacks and investment tax incentives for sustainable energy initiatives like the generation of hydrogen from renewable sources.
“Canada cannot avoid the global slowdown to come, any more than we could have prevented Covid from reaching our shores once it had begun to infect the world, but we will be ready,” Freeland said in a speech to parliament.
In addition to mentioning “targeted inflation relief” for people in need, the minister stated that “we cannot support every single Canadian in the way we did with emergency measures at the height of the pandemic.”
She went on to clarify that more substantial economic stimulus spending would be in opposition to the central bank’s efforts to combat rising consumer prices. After rocketing to a June high of 8.1 per cent, inflation gradually decreased to 6.9 per cent in September.
The Bank of Canada responded by increasing interest rates by an excessive amount, to 3.75 per cent, and indicating that there will be additional increases. After the economy roared back from a relatively brief pandemic depression, that will undoubtedly cause it to cool and possibly cause it to enter a recession.
The economy was anticipated to expand by 3.9 per cent this year in the government’s April budget. According to Freeland’s fiscal report, growth will now be 3.2% this year and 0.7% in 2019.
In the worst-case scenario, it was noted, Canada might experience “a mild recession” at the start of 2023. The Liberals in power are under pressure to address inflation and the high cost of living that results from it, and the main opposition Conservatives in Canada have asked that the government stop its pandemic spending.
After the government provided massive pandemic relief that caused the national debt to reach a record Can$1.16 trillion this year, Freeland already cut expenditures in her April budget. She said on Thursday that the fiscal 2022–2023 deficit, which was initially projected to total Can$36 billion, will actually be 30% lower. In contrast, it is anticipated that Canada’s debt-to-GDP ratio will decrease somewhat more than originally estimated, to 42.3%.
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